Upgrading the debate over Trans Mountain Pipeline

A totem pole on the Tsleil-Waututh First Nation that was a gift from the Lummi Nation in Washington state, frames the Chevron Burnaby Oil Refinery in the distance after the totem was unveiled during a ceremony in North Vancouver, B.C., on Sunday September 29, 2013. THE CANADIAN PRESS/Darryl Dyck

"So what’s the long-term solution? Have Ottawa and Alberta get together with industry to build a major oil sands upgrader..."

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Now that the Trans Mountain Pipeline expansion is suspended for at least a couple of months and perhaps for years, the federal and Alberta governments may have to shift to the long-term view to resolve the Mexican stand-off.

In the short-term, even cutting off oil shipments to British Columbia — or something equally dramatic — is unlikely to get environmentalists, indigenous opponents, municipal officials and, yes, the B.C. government to withdraw their opposition. A recent court decision prohibiting protesters from approaching the worksite has not done the trick; sending arrested protesters to criminal court may just inflame passions even more. And further court involvement may also not clear the course, but merely gobble up more time.

So what’s the long-term solution? Have Ottawa and Alberta get together with industry to build a major oil sands upgrader, to eliminate the need to move the feared diluted bitumen (dilbit) through the Trans Mountain pipeline, to tidewater and tankers.

Such an upgrader would solve a number of issues all at once:

First, it would replace diluted bitumen — the gunky stuff that many opponents fear will spill and bespoil the environment — with the type of regular oil that Trans Mountain is already carrying without major issue. This would eliminate the concerns about dilbit spills along the Trans Mountain route and at the tidewater terminal.

Second, it would dramatically reduce the need for importing hundreds of thousands of barrels of natural gas liquids (NGLs) used to dilute oil sands bitumen, so that it can be transported by pipeline, train and trucks. By 2025, Canada may need 1-million barrels a day of diluent for moving oil sands bitumen.

Third, moving light oil in place of diluted bitumen frees up more pipeline capacity, to allow more Alberta oil to get to markets. The upgrader would extract and concentrate oil sands into regular light oil that’s much easier and safer to move by pipeline and train.

Fourth, an Alberta upgrader would increase the price that Alberta and the oil industry get for oil sands production. Right now, heavy oils and diluted bitumen are heavily discounted in the U.S. and export markets, since they have to be heavily refined into higher-grade oil products.

Fifth, the upgrader option could help kick-start the stalled Keystone XL pipeline project, which connects Alberta with the southern parts of the already-built Keystone pipeline. Currently, Keystone XL proposes to transport diluted bitumen to Gulf Coast refineries, which can handle heavy oils and bitumen.

Sixth, reducing the need for natural gas liquids, to dilute bitumen so it can move through a pipeline, also means that the natural gas feedstock can be used for other things, such as making high-value petrochemicals and replacing coal in the production of electricity in the Prairie provinces. That in turn reduces emissions of Greenhouse gases and becomes a plus under the federal government’s (and Alberta’s) carbon tax regime.

Interestingly enough, Alberta recently announced that it would provide $1-billion to fund some partial upgrader pilot projects within the province, to increase prices for Alberta oil sand and reduce the need for diluent. But that’s really only a half-step.
So what are the downsides? Money and time.

Committing to a major oil sands upgrader would require tens of billions in government and private sector funding.

The recently-completed North West refinery in Alberta, that produces 50,000 barrels per day of diesel and other diluent from bitumen, cost almost $10-billion, up from the 2013 estimate of more than the $5.6-billion. The refinery took roughly four years to build.

That provides a sense of the amount of money and time to build an upgrader that would transform bitumen into lighter oils that could then be shipped by pipeline and rail other refineries, for refining into gasoline, diesel, heating oil and other products.

There’s a precedent for government and industry to work together on an upgrader. In 1988, the federal government, Saskatchewan and Alberta agreed to join Husky Oil to construct and operate the Husky Oil Lloydminster Upgrader.

The project, initially forecast to cost $1.267-billion, ended up costing $1.632-billion. The upgrader produced its first synthetic crude oil from heavy crude oil four years later; for the first half of 1994, the plant produced 48,000 bpd. Later in 1994, Saskatchewan and Husky bought out the federal and Alberta governments’ share in the project and the two agreed to keep the upgrader operating.

Even with an upgrader option, some opposition to the Trans Mountain expansion could be expected to continue. But the main reason — the concern about carrying diluted bitumen and the risk of oil spills of the heavy oil — would be gone. And the need to restart the regulatory process, with its costs and inevitable delays, could also be side-stepped.

In the short-term, the Alberta and federal governments may feel that they have to pursue heavy-handed options — the courts and draconian legislation. But in the long-term, the upgrader option may end up being the only real solution.

So governments should at least start looking at how to pursue it, if only quietly behind closed doors.

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The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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Jeff Carruthers is a retired award-winning business and energy journalist for the Globe and Mail, the Ottawa Journal and other newspapers in the then FP Publications chain.
During the 1980s and early 1990s, he was a senior executive at the DG and ADM level in the federal energy department and the department of supply and services.
He was Director of Government Information Services at Globe Information Services in the early 90s, followed by more than six years as Principle and then Partner at Sussex Circle, an Ottawa-based boutique strategic policy consulting firm. He also taught at Carleton University’s School of Journalism and Communications for more than 10 years.
He is currently a writer and market gardener on a small acreage near Elphin, Ontario.